Food prices up in Jan after 6-month downtrend

Milan, February 9, 2012

Global food prices rose in January for the first time in six months and may show another rise for February, as concern about bad weather in main growing regions boosted grain and vegetable oil values, the UN’s food agency said on Thursday.

January's increase was not expected to heap as much inflationary pressure on economies as a year ago, when prices were climbing towards record highs, the UN's Food and Agriculture Organisation (FAO) said ahead of the European Central Bank's decision on interest rates.

Global food prices, which have been falling since July 2011, rose nearly 2 per cent in January from the previous month, with the FAO food price index averaging 214 points.

'It is a pause in a downward trend rather than reversal, with a lot of unpredictability,' the FAO's senior economist Abdolreza Abbassian told Reuters in a telephone interview.

'There is scope for an increase in prices in February given what we've seen in the first week,' Abbassian said, adding that high energy prices, exchange rate and strong equity markets could push food prices higher this month.

Weather in main producing countries remained a key factor for prices adding greater uncertainty, Abbassian said.

US corn and soybean prices have gained recently on expectations of smaller crops in the drought-hit South America.

'Inflationary pressure from food prices is not as significant as a year ago,' Abbassian said.

World food prices measured by the FAO hit a record in February 2011, helping fuel inflation and stoke the unrest of the Arab Spring. Prices have dropped in the second half of 2011.

FAO's food price index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, remained 7 per cent below the January 2011 figure and well below the 238 point record hit in February 2011.

The ECB is widely expected to keep interest rates on hold in February but may signal it is ready to cut rates in March to help support the euro zone economy.

The FAO raised its estimate of world cereal output to a record 2.327 billion tonnes, up by 4.6 million tonnes from its previous forecast and 3.6 per cent higher than 2010 output.

It also raised its view on world cereal stocks by the end of seasons in 2012 by 5 million tonnes to 516 million tonnes.

In January, coarse grains, such as maize, registered the steepest gain in the FAO's index, with prices rising 6 per cent, mostly driven by a tight global supply and demand balance and concerns over crop prospects in South America, the FAO said.

Wheat prices also gained with the wheat index rising 1.5 per cent driven by maize prices, depleting export supplies in Russia and unfavourable weather in several important growing regions, the agency said.

Global food prices were set to fall further this year as a weaker world economy dampens consumer demand while food supplies increase, but a possible rise in oil prices could reverse the trend, the World Bank said last month. – Reuters